NZIER report on compensation for transmission infrastructure

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there will be an incentive for Transpower to use them in situations where other options involve less real resource cost. This would lower long term net welfare. From a transmission utility‟s perspective easements are worthwhile if they are less costly than alternative options for routeing and locating transmission lines and facilities. The saving relative to the next best alternative creates an economic surplus for the utility. From a national perspective, however, the true surplus is over and above the full cost of the easement, including the compensation paid for it. 2.2 Equity – splitting the surplus Equity is concerned with how efficiency gains or rents from economic activity are distributed between parties. Beyond covering the full cost of land occupancy, easements also create some economic rent in savings relative to the next best alternative. In New Zealand the total surplus appears to accrue to Transpower, as it is legally required to provide compensation equal only to what the easements cost landowners. In other countries, however, landowners share in the surplus created by easements. 10 Other than identifying the distribution of costs and benefits (both direct and indirect) across the parties, economics has little to say about equity, perceptions of which are determined in each community according to factors such as social and political considerations. On the other hand, although splitting a surplus may be considered purely a distributional issue, there are situations in which it affects efficiency as well (see 2.3.2 below). 2.3 An economic framework As discussed above an accurate assessment and comparison of the total costs for transmission infrastructure is needed so as to identify the most efficient option for transmitting electricity. The net cost of an easement includes the impact of transmission lines on the value of the affected land, incorporating any change to future sales value and the net present value of revenue streams. These costs are borne by landowners in the first instance and are represented by the upwards sloping line in Figure 1. (The line slopes up as landowner easement costs vary with landuse). This line represents, if all costs are known, the minimum price a landowner would be willing to accept for an easement. 10 In Canada, Finland, and the United Kingdom for example, see Nuuja and Viitanen 2007; Hydro- Quebec 2000 and Hamer and O‟Brien 2007. <strong>NZIER</strong> – Compensation for transmission infrastructure 11
Figure 1 Infrastructure surplus $ Source: <strong>NZIER</strong> Net surplus from easements Cost of alternative borne by Transpower Net easement costs borne by landowners Net loss from easements Land use As illustrated in Figure 1 the cost of the next most efficient alternative for transmitting electricity is assumed to be constant (the line is flat) and borne by Transpower. An alternative to building easements over dairy farmland could, for example, be running lines longer distances over less productive land (also possibly requiring easements). Transpower would have to fund the additional cost of running lines over the longer route. The cost savings between the two routes is thus the maximum price that Transpower would be willing to pay for the easement. The relative preference for easements or alternatives varies with circumstances and over time. In the past, for instance, transmission lines have commonly been run across Crown land or along public road corridors, even where this is not the most direct route, as this reduced the transaction costs of dealing with multiple owners. When new lines are required and such options are less readily available, options with easements become more attractive. And if an option with easements would achieve big savings over the next best alternative, it would be in Transpower‟s interest to pay more to secure the access, in effect sharing with the landowner some of the surplus that the route would provide. In several countries landowners are given compensation greater than the estimated value of the easement. In Québec, for example, the total easement area is compensated for at market value of land, in effect providing payment considerably greater than estimated costs (see section 3.4.1). Easements in New Zealand, however, are compensated for at cost. There is some concern that, at times, these costs may be understated. If this is the case it is possible that easements would be constructed when they are not the most efficient option for transmitting electricity. <strong>NZIER</strong> – Compensation for transmission infrastructure 12
Page 1 and 2: Compensation for transmission infra
Page 3 and 4: Key points Easements create a surpl
Page 5 and 6: The costs of providing the option o
Page 7 and 8: 5.1 Costs of periodic payments ....
Page 9 and 10: Some authors suggest that that the
Page 11: 2. Easements An easement is a right
Page 15 and 16: information and the method by which
Page 17 and 18: Landowners feel, however, that Tran
Page 19 and 20: The remainder of the literature rev
Page 21 and 22: the degree of sterilisation (Hydro-
Page 23 and 24: the cost of driving around support
Page 25 and 26: lump-sum and annual payments (PSC 2
Page 27 and 28: thought approximately 90 percent of
Page 29 and 30: Table 1 Compensation summary Countr
Page 31 and 32: 4.1.1 Market value of land Estimati
Page 33 and 34: landowners is to do with the requir
Page 35 and 36: cross already worked ground. As an
Page 37 and 38: In a number of countries the effect
Page 39 and 40: 5.1 Costs of periodic payments We s
Page 41 and 42: for four different land uses (fores
Page 43 and 44: 5.2 Results For modelling purposes
Page 45 and 46: 6. Transparency and collective barg
Page 47 and 48: In conclusion we think that easemen
Page 49: Munneke, H and J Trefzger 1998. Non

NZIER report on compensation for transmission infrastructure

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